June 24, 2010
Mr. Kevin Woody
Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Mr. Woody,
Further to your June 10, 2010 correspondence to Huron Consulting Group Inc. (the
“Company”), we provide below our response to each of your comments. For each response below
where applicable, capitalized terms that are not otherwise defined are used as defined in
the Company’s Annual Report on Form 10-K or Schedule 14A.
Form 10-K for year ended December 31, 2009
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Year ended December 31, 2009 Compared to Year Ended December 31, 2008
Segment Results
Health and Education Consulting
Revenues, page 44
| 1. | We note that there was a delay in your ability to recognize performance-based revenues. To the extent you have recorded revenue in 2009 that was earned in 2008, please tell us how you have complied with U.S. GAAP or tell us how you determined it was not necessary to record the performance-based revenue in the period earned. |
Response: In accordance with ASC 605-10-S99, we recognize revenue when the following four
criteria are met:
| a) | Pervasive evidence of an arrangement exists | ||
| b) | Delivery has occurred or services have been rendered |
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Chicago, IL 60607
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Chicago, IL 60607
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| c) | The seller’s price to the buyer is fixed or determinable | ||
| d) | Collectibility is reasonably assured |
We do not recognize revenues under performance-based billing arrangements until all related
performance criteria are met. In performance-based billing arrangements, fees are tied to
the attainment of contractually defined objectives. For certain performance-based services
related to the legacy Stockamp engagements, we were unable to recognize revenue as of
December 31, 2008 as we had not yet reached agreement with these clients with respect to
both the achievement of and measured value of such services, and therefore, criteria b) and
c) above were not met. During the first half of 2009, criteria b) and c) above were met and
the performance-based revenue was then recognized accordingly.
Prior to being acquired by the Company in July 2008, Stockamp’s process to arrive at client
agreement with respect to achievement and measured value of performance-based services
typically occurred towards the end of engagements and, therefore, subsequent to the period
that the underlying services were performed. Since the acquisition, the Stockamp practice
group has adopted certain Huron processes that include formalized agreements with clients on
the achievement and measurement of performance-based revenues in a timely fashion such that
criteria b) and c) above are met and the respective revenue is then recognized in the period
that the underlying services are performed. The Company consistently recognized revenue in
accordance with GAAP for both years ended December 31, 2008 and 2009.
Financial Statements
Consolidated Statement of Cash Flows, page F-6
| 2. | We note your line item for ‘Impairment charge on goodwill’ and ‘Impairment of goodwill and intangibles related to discontinued operations.’ On page F-28, you disclose that $39 million of the $106 million impairment charge is reported as discontinued operations. Please tell us how you determined it was not appropriate to include the $39 million within the line item ‘Impairment of goodwill and intangibles related to discontinued operations.’ |
Response: As reported on the Company’s Consolidated Statement of Cash Flows, the line
titled “Impairment of goodwill and intangibles related to discontinued operations” is
comprised of $3.1 million of goodwill allocated to the disposal of Galt and $0.3 million
resulting from the write-off of the remaining intangible asset balances related to the Galt
acquisition. As described in footnote 6 on page F-26 of the notes to consolidated financial
statements, in accordance with ASC Topic 350, a portion of the goodwill associated with the
Corporate Consulting segment as of December 31, 2009 was allocated to the Galt business, a
discontinued operation as of December 31, 2009, based on the relative fair value of the
business to be disposed of and the portion of the reporting unit that will be retained.
Accordingly, goodwill at the Corporate Consulting segment was decreased by $3.1 million and
included in the loss on disposal of Galt. In addition, $0.3 million of the $3.4 million
amount reported in this line is related to the write-
550 W. Van Buren Street
Chicago, IL 60607
P 312-583-8700 F 312-583-8701
Chicago, IL 60607
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down of intangibles related to Galt
that were not fully amortized as of the date of sale and, as a result, amortization was
accelerated to write these assets to zero as of December 31, 2009.
The Company presents its Consolidated Statements of Cash Flows on a combined basis for
continuing operations and discontinued operations in accordance with ASC Topic 230-10-45-24
which states that separate disclosure of cash flows pertaining to discontinued operations
reflected in those categories is not required. Accordingly, the $106 million goodwill
impairment charge that resulted from the August 3, 2009 goodwill impairment test is reported
on a combined basis and includes the impairment charge allocated to both continuing
operations and discontinued operations. The $3.4 million write-down of goodwill and
intangibles was related to the December 31, 2009 sale of the Galt business and as such was
appropriately not combined with the $106 million impairment charge discussed above.
In future filings, the Company will include any goodwill allocated to the disposal of the
Company’s businesses and related intangible asset balance write-downs in a line titled
“Write-down of goodwill and intangibles related to sale of business” in order to more
appropriately describe any such amounts.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies, page F-7
| 3. | Please tell us how you have complied with paragraph 1 of ASC 235-10-50, or tell us how you determined it was not necessary to include your accounting policy for your deferred compensation plan. |
Response: The Company does not deem the accounting policy related to the deferred
compensation plan to be a significant policy that is integral to the understanding of the
fair presentation of financial position, cash flows, and results of operations in accordance
with GAAP. The Company made this determination of materiality based on the amounts related
to the deferred compensation plan. The deferred life insurance assets were $4.3 million, or
0.6% of total assets, as of December 31, 2009 and $3.9 million, or 0.5% of total assets, as
of December 31, 2008. The corresponding deferred compensation liability was $4.0 million,
or 0.9% of total liabilities, as of December 31, 2009 and $3.9 million, or 0.8% of total
liabilities, as of December 31, 2008. The impact of the deferred compensation plan to the
results of operations is also immaterial, as the gains (or losses) that result from
increases (or decreases) in the market value of our investments that are used to fund the
deferred compensation liability are offset by related increases (or decreases) in direct
costs as the corresponding deferred compensation liability increases (or decreases).
Other Gains, page F-36
| 4. | Please tell us the nature of the gains relating to the release of certain of your employees from their non-solicitation agreements. Further, please tell us if these gains are |
550 W. Van Buren Street
Chicago, IL 60607
P 312-583-8700 F 312-583-8701
Chicago, IL 60607
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www.huronconsultinggroup.com
| included in the ‘non-cash gains and other’ adjustment to net income on your Consolidated Statements of Cash Flows. To the extent these gains are non-cash, please tell us how you determined it was appropriate to recognize these gains in the current period, and reference the authoritative literature management relied upon. |
Response: The Company recorded “Other gains” of $4.8 million in 2009, $3.2 million of which
was related to the release of certain employees from their non-solicitation agreements with
the Company and the settlement of certain contractual obligations. Recording these items
resulted in a receivable of $3.2 million as of December 31, 2009 as the agreements called
for these cash payments to be made in accordance with set payment schedules ending no later
than December 31, 2011, as set forth in the agreements. The Company determined that the
gains were realizable based on the criteria set forth in ASC 605-10-25-1, which states that
revenue and gains are realizable when related assets received or held are readily
convertible to known amounts of cash or claims to cash. Therefore, the Company appropriately
recognized the gains when the agreements were executed in exchange for a value that was both
determinable and collectible. The Company included these amounts in “Non-cash gains and
other” in the Consolidated Statement of Cash flows as an adjustment to reconcile net income
to net cash provided by operating activities. As the nature of these payments is
installment-based and in accordance with the payment schedules outlined in the agreements,
the Company felt it appropriate to show these nonrecurring amounts separate from “Changes in
operating assets and liabilities, net of businesses acquired”.
The remaining $1.5 million of “Other gains” recorded in the fourth quarter of 2009 was
related to a cash gain recorded for the sale of assets, which was paid in full to the
Company during the fourth quarter.
In future
filings, the Company will include any similar cash gains
as described above
in the line “Other gains” to more appropriately describe
any such amounts.
Schedule 14A
Executive Compensation, page 18
| 5. | Please refer to Release 33-8732A, Section II.B.1 (August 29, 2006). As noted therein, the Compensation Discussion and Analysis should be sufficiently precise to identify material differences in compensation policies with respect to individual executive officers. Please tell us the reasons for the differences in the amounts of compensation awarded to the named executive officers. Please also confirm you will include this disclosure in future filings. For example, we note that Ms. Delgado and Ms. Sawall received substantially less compensation than the other named executive officers. Please see Item 402(b)(2)(vii) of Regulation S-K. |
550 W. Van Buren Street
Chicago, IL 60607
P 312-583-8700 F 312-583-8701
Chicago, IL 60607
P 312-583-8700 F 312-583-8701
www.huronconsultinggroup.com
Response: With respect to the determination of the level of compensation earned by the
named executive officers in fiscal year 2009, the Company did not use a formulaic approach.
Instead, the Compensation Committee and the former CEO made subjective determinations based
on all information they determined to be relevant and without emphasis on any individual
factor. As noted on pages 20-22 of our proxy statement, factors considered by the
Compensation Committee and the former CEO included the scope of each named executive
officer’s responsibilities, contribution and performance, relative base salary levels among
the named executive officers and the general economic environment. In determining fiscal
year 2009
incentive compensation, the Compensation Committee also considered the challenges faced by
the new management team, and how well they collaborated to respond to those challenges,
following the financial restatement.
The substantial difference in compensation between Mss. Delgado and Sawall and Messrs. Rojas
and Shade is primarily attributable to certain nonrecurring awards made to Messrs. Rojas and
Shade before they became executive officers. Mr. Shade became an executive officer on May
6, 2009 when he was appointed COO. Mr. Shade received an equity award of 50,000 shares of
restricted stock in January 2009 to recognize his outstanding contributions to Huron and to
incentivize him with regard to the integration of healthcare practices that the Company had
recently acquired. Upon his hire on June 15, 2009, Mr. Rojas received a sign-on bonus of
$500,000 and a grant of 40,000 shares of restricted stock. Mr. Rojas did not become an
executive officer until July 30, 2009, after the new management team was established
following the financial restatement. Because these awards were made prior to the time that
Messrs. Rojas and Shade became named executive officers, we did not consider them material
components of the Company’s executive compensation program for fiscal year 2009 and did not
discuss them in the Compensation Discussion and Analysis; however, this compensation is
disclosed in the 2009 Summary Compensation Table, the footnotes to the 2009 Summary
Compensation Table and in the 2009 Grants of Plan-Based Awards Table. In future filings, we
will discuss compensation decisions made before a person became a named executive officer to
the extent such decisions are material to an understanding of a named executive officer’s
compensation.
Please note that toward the end of fiscal year 2009, the Compensation Committee identified a
peer group that has been considered in compensation decisions since the beginning of fiscal
year 2010. This peer group will be the primary factor for establishing target compensation
and for determining differences in compensation among the named executive officers, although
other factors will continue to be considered. In future filings, to the extent that there
are material differences in compensation with respect to executive officers, the
reasons for those differences will be identified.
Huron Compensation Program Elements, page 20
| 6. | We note that you target compensation to within a range of 10% of the median compensation level of your peer group. To the extent you awarded compensation to an executive officer that was above or below the targeted level of those in your peer group, please identify the officer and tell us why you awarded compensation to the officer at a |
550 W. Van Buren Street
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P 312-583-8700 F 312-583-8701
Chicago, IL 60607
P 312-583-8700 F 312-583-8701
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| level that was above or below the target. Additionally, please confirm you will include this disclosure in future filings. |
Response: Except with respect to certain components of the compensation of the current CEO
and current CFO, we did not use a peer group in setting fiscal year 2009 compensation. As
discussed on page 19 of the proxy statement and in our response to comment 5 above, in
connection with the overhaul of our compensation programs following the restatement, we
adopted a peer group toward the end of fiscal year 2009 that the Compensation Committee has
considered when making compensation decisions since the beginning of fiscal year 2010. For
fiscal year 2010, the Compensation Committee established total direct compensation targets
for
the executive officers within 10% of the market median; however, individual components of
total direct compensation may vary by more than 10% from the market median. With respect to
the current CEO and current CFO only, the Compensation Committee applied their fiscal year
2010 base salary and cash incentive target compensation retroactively to July 30, 2009, but
did not adjust any other components of fiscal year 2009 compensation. Therefore, the stated
10% range for total direct compensation did not apply to any of the named executive
officers’ compensation for fiscal year 2009. In future filings, if the awarded total direct
compensation falls outside the targeted range, we will discuss that fact as well as the
reasons therefor, and we will clarify that the 10% range applies on an aggregate basis to
total direct compensation.
Annual Cash Incentive, page 21
| 7. | We note that you approved incentive payouts at 75% of target. Please disclose how you determined this target. Please disclose the specific individual and corporate performance measures that were taken into account in determining the bonus payments for each named executive officer and how they compared to actual results. For example, we note that you based incentive levels on revenue and EBITDA performance. Please disclose the actual target numbers for corporate performance and what was achieved. Please provide this disclosure in future filings and tell us how you intend to comply. Alternatively, tell us why you believe that disclosure of these targets is not required. Refer to paragraphs (v) and (vii) of Item 402(b)(2) of Regulation S-K and Instruction 4 to Item 402(b) of Regulation S-K. |
Response: The amount of annual incentive compensation paid to the named executive officers
for fiscal year 2009 was subject to the discretion of the Compensation Committee. In
determining the amount of annual incentive compensation to be paid to the named executive
officers, the Compensation Committee first determined the size of the total bonus pool from
which annual incentives for all employees were paid, taking into account the Company’s level
of achievement of the revised revenue and adjusted EBITDA guidance that it provided to
stockholders in August 2009, following the restatement, and the amount of compensation
necessary to adequately reward and retain critical employees. Although the Company achieved
both its revised revenue guidance of $650 million – $680 million (actual revenue was $663.9
million) and its revised adjusted EBITDA guidance of
$135 million – $151 million (actual
adjusted EBITDA was $143.9 million) for fiscal year 2009, the Compensation Committee did
550 W. Van Buren Street
Chicago, IL 60607
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Chicago, IL 60607
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not believe that these results justified a fully funded bonus pool because the results were
below the guidance provided to stockholders at the beginning of fiscal year 2009, prior to
the restatement. The achievement of stockholder guidance is not a formal target that binds
the Compensation Committee. Balancing stockholder expectations against the Company’s strong
performance in the second half of fiscal year 2009, the Compensation Committee determined to
fund the bonus pool at 75% of target incentive compensation. Second, the Compensation
Committee determined the level of incentive compensation to pay to each of the named
executive officers based on the Compensation Committee’s
assessment of each individual named
executive officer’s relative influence on the Company’s performance. As discussed on page
22 of the proxy statement, the Compensation Committee determined that, following the
restatement, teamwork, both within the management team and across the various practice
groups, was integral to the Company’s strong performance in the second half of fiscal year
2009. Accordingly, all of
the named executive officers were awarded incentive compensation at 75% of target, the same
level as the overall funding of the bonus pool.
In future filings, if specific individual and corporate performance measures are taken
into account in determining the bonus payments for a named executive officer, we will
describe those performance measures and specify the value of any targets, subject to any
determinations with regard to materiality and the applicability of Instruction 4 to Item
402(b) of Regulation S-K.
| 8. | Please disclose how you determined the amount of the target bonus pool. Please refer to Item 402(b)(1)(v) of Regulation S-K. |
Response: The target bonus pool for the Company is the sum of each employee’s target bonus
amount. Except for managing directors and executive officers, the Huron Incentive Plan
specifies a particular percentage of base salary for eligible individuals based on their
title. For managing directors, targets are based on each managing director’s individual
agreement. The Compensation Committee annually establishes target incentive levels for the
executive officers, although a minimum level is specified in some of the executive officers’
employment agreements. As discussed on pages 20-22 of our proxy statement, for fiscal year
2009, the Compensation Committee set targets for the executive officers at a level that it
believed would create a significant variable compensation opportunity and thereby encourage
strong performance, taking into consideration relative target pay between the executive
officers and other employees of the Company.
As noted in our response to comment 5, toward the end of fiscal year 2009, the Compensation
Committee identified a peer group that has been considered in compensation decisions since
the beginning of fiscal year 2010. This peer group will be the primary factor for
establishing the target bonus incentive opportunity of the named executive officers,
although other factors will continue to be considered. In future filings, the Company will
disclose how the target bonus incentive opportunity of each named
executive officer generally relates
to the target bonus incentive opportunity of executives in comparable positions in the peer
group. Further, to the extent that the Compensation Committee exercises discretion to
deviate from the peer group with respect to
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the determination of the portion of the target
bonus pool attributable to the named executive officers, any material factors relevant to
the exercise of discretion will be identified.
Summary Compensation Table, page 25
| 9. | We note that almost all of your named executive officers received other compensation valued at over $10,000. Please note that if the total value of all perquisites and personal benefits is $10,000 or more for any named executive officer, then each perquisite or personal benefit, regardless of its amount, must be identified by type. Additionally, each perquisite or personal benefit that exceeds the greater of $25,000 or 10% of the total amount of perquisites and personal benefits for that officer must be quantified and disclosed in a footnote. Based on the disclosure in footnote 5, it does not appear that you have identified all of the perquisites for the named executive officers. For example, we note that Mr. Shade received $25,490 in other compensation. However, you have only identified and quantified the 401k matching contribution he received. Please refer to Item 402(c)(2)(ix) and Instruction 4 to Item 402(c)(2)(ix) of Regulation S-K. Please provide this disclosure in future filings and tell us how you intend to comply or advise. |
Response: We reviewed Footnote 5 to the Summary Compensation Table in our proxy statement,
and we agree that we should have quantified the payment of the premiums on executive life
insurance for Mr. Shade, which had a value of $10,790. In future filings, we will identify
and quantify any compensation in the form of perquisites, personal benefits or other
compensation that is required to be identified or quantified, respectively, under Item
402(c)(2)(ix).
In response to your letter, the Company also acknowledges that:
| • | The Company is responsible for the adequacy and accuracy of the disclosure in the above discussed filings; | ||
| • | Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and | ||
| • | The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
If you
have any additional questions or require more information, please
contact me at 550 West Van Buren Street, Chicago, IL 60607, (312) 583-8700.
Sincerely,
/s/
James K. Rojas
James K. Rojas
Vice President, Chief Financial Officer and Treasurer
James K. Rojas
Vice President, Chief Financial Officer and Treasurer
550 W. Van Buren Street
Chicago, IL 60607
P 312-583-8700 F 312-583-8701
Chicago, IL 60607
P 312-583-8700 F 312-583-8701
www.huronconsultinggroup.com